Another week, another alarming pronouncement on flood insurability from the property search industry. This week SearchFlow have managed to place their “calculations” in the Mortgage Introducer, the Independent, and the Insurance Times (who should really know better).
According to SearchFlow a quarter of all UK properties could be unable to obtain insurance against flooding, once the Statement of Principles on the Provision of Flood Insurance (an agreement between Government and the insurance industry) expires in June 2013.
A quarter of all UK properties? Is this apocalyptic vision remotely plausible?
Basically what SearchFlow seem to have done is taken the highest possible estimate of all UK properties in areas that could conceivably be affected by flooding, and assumed that insurers are so risk-averse that they might take leave of their commercial senses and withdraw cover on all of those properties.
Only a small subset of those properties are at sufficient risk to concern insurers. For the vast majority of properties any actual flood risk is nominal, i.e. at a very low probability and/or very low severity. Underwriters will price for that risk, but household insurance will remain affordable on nearly all properties.
SearchFlow also seem to think home buyers will have trouble obtaining insurance beginning from this summer. Unlikely. The Statement of Principles applies to renewals (not policy periods) up to the end of June 2013. Any renewal with a reputable insurer this summer should be unaffected.
Last week GroundSure had a go in the Mortgage Finance Gazette: “One in six properties in England is at risk of flooding. This equates to around 5.2 million properties …” It doesn’t, but never mind that. GroundSure’s angle is that homebuyers can’t trust the public Environment Agency flood maps to give them a reliable view of insurability for flood risk, because those maps mainly cover flooding from rivers and the sea. To get the full picture you need to buy a search report with information from commercial flood models that also include surface water flood risk during heavy rainfall.
Doubtful. There are no reliable models of surface water risk at property or postcode level, and insurers know that the average per property cost of surface water flooding is relatively low anyway. Surface water flooding can happen in pretty much any urban area, so insurers only care about that type of flood risk if they already underwrite a lot of other property exposures nearby.
Unless your property has actually flooded in the past, surface water risk in your area shouldn’t seriously affect your ability to get household insurance. For anyone who wants to investigate for themselves, local authority reports on surface water susceptibility have recently been published on the web.
Landmark Information Group director James Sherwood-Rogers (prior to his recent departure from the company) also weighed in on this issue, with figures that were similarly woolly (“based on the 2008 RMS 1,000-year Inland Flood risk zones map, one in four homes in the UK are considered ‘at risk’ of flooding”). However Landmark have at least made a credible attempt to engage in the policy debate and inform homeowners on property-level flood protection via their Know Your Flood Risk campaign.
None of these search companies actually model flood risk themselves, but they all sell flood reports to the conveyancing market and have a financial interest in maximising the level of public concern about flood risk.
Homebuyers should certainly want to know if they are at genuine risk of flooding, and there’s no question that conveyancing professionals need to pay more attention to insurability as a factor in the housing market. However even the Association of British Insurers, which is also lobbying for action on flood risk management, only estimates that about 200,000 households in high-risk areas will have real difficulty getting flood insurance if the Government refuses to provide a subsidy.
Nobody really knows for sure how the UK household insurance market will behave after the Statement of Principles expires in 2013, because competition law prevents individual insurers from discussing their underwriting strategies with one another. However the most likely outcome is that properties in high-risk and moderate-risk areas will be shared out more evenly among different insurers. Premium adjustments will encourage many homeowners to change insurers, but only a small proportion will actually have difficulty getting insurance.
More background? For a reading of the insurers’ perspective see this report from economics consultancy Oxera. For the latest Government view see this DeFRA report. Both are from late last year; the latest word is that the two sides are continuing to discuss flood insurance issues with some sort of policy announcement due in the spring.